ECONOMICS OF AGEING POPULATIONIN

SOUTH ASIA: IMPLICATIONS AND POLICY RESPONSES

By:

Abhijith Jayanthi

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ABSTRACT

South Asian countries are passing through the second phase of the Demographic Transition, with both fertility and mortality in the region declining with mortality declining faster than fertility. These countries are expected to enter in the third phase of transition with fast declining fertility rate along with mortality decline, in the future not too distant, resulting in rapid ageing of the population. However, this transition in the region defies the propositions of the conventional Demographic Transition Theory, which says that these high levels of mortality and fertility decline are matched by higher level of development.

Countries in the region will have to face population ageing at a much earlier stage of development. Thus, they will have different set of problems as compared to their western counterparts and hence will have to evolve a different set of solutions which can’t take high development levels as given.

We try to analyze all such issues which population ageing will rise in the region in the coming years. Also, throw some light on necessary changes in the policy and in the institutional setup required in order to face the challenge of population ageing

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S.No. TOPIC PAGE No.1. Introduction 4

2. Economics of Ageing Population:

Determinants of population ageing

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3. Ageing in South Asia:

Speed and features

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4. Implications of population ageing 105. Population Ageing:

The Indian Scenario

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6. Policy Responses 167. Conclusion 208. Appendices 219. References 26

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INTRODUCTION

Population ageing is the increase in the proportion of “older people”, in the total population*. Until recently, ageing was usually regarded as a set of issues to be confronted only by developed countries. However, ageing is now a global problem affecting developing countries as well. By 2025, It is projected that about 858 million elderly will be living in developing regions-constituting about 72 percent of world’s total elderly population**.The story in South Asia will not be an exception. In the region, it is expected that the number of people above 65 years of age will rise to 334.2 million by 2050 registering a growth by 393 percent since the year 2000. Interestingly, the process of population ageing will occur more rapidly in the region than it did in western countries, also it will occur at a much earlier stage of economic development. The central policy implication, therefore, is that South Asian countries will have to plan for the increasingly rapid ageing of their populations at the same time as they struggle with the economic growth challenges of the shift from an agrarian environment to more urban and industrial environments. Also, prospective ageing of the population will give rise to concerns about our ability as a society to meet the resulting increases in health care, pension, and other costs associated with the population ageing.

All these issues are discussed in the paper in detail over the six sections. It begins with a brief discussion on the factors which cause ageing of the population, viz. Fertility and Mortality decline. Second section discusses the nature of population ageing in the South Asian region. The third section looks into the implications, the population ageing, is expected to have on the economies of the region. Fourth section provides an insight into the present and future demographic status of India. Fifth section discusses some of the institutional changes and policy reforms which would be required to mitigate the negative effects of ageing on the economies. And the final section summarizes the whole discussion and envisages how the region can derive the “demographic dividend” at least till 2025 when the population ageing will gain the fast pace.

* There is no clear cut definition of the” older population”. However, population aged 55 and above is generally considered to be old. In the paper, though, age 60 and 65 both are taken as threshold for defining older population at different places.

** There has been a dearth of erotological research on the South Asian ageing population; hence data relating to South Asian Ageing is sparse. Therefore, the paper uses data from developing countries at some places, however, without the loss of its relevance.

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ECONOMICS OF AGEING POPULATION

Demographic determinants of population ageing

Population ageing takes place in two ways: as a result of changes at the base of the age pyramid or at its apex. When the proportion of older persons increases as a result of a decline in fertility, there is a commensurate decrease in the proportion of young persons; this is ageing at the base of the age pyramid. Changes at the apex of the age pyramid occur with lower mortality rates among older persons. Thus, demographic transition begins when there is a secular change from a regime of high fertility and mortality to one of low fertility and mortality.

Decline in mortality

The decline in the mortality rate has been the main trigger at the initial stage of demographic transition. Advances in the medical field and improved access to health services have led to a sharp reduction in infant mortality along with maternal and adult mortality. Aggressive campaigns to control infectious diseases such as malaria and tuberculosis, along with the successful control of frequent epidemics of smallpox, cholera and yellow fever, contributed positively to improvements in the mortality rate as early as the 1920s. For example, the mortality rate fell sharply in Sri Lanka when public health programs and campaigns for sanitation were undertaken, particularly to eradicate malaria, which led to an increase in life expectancy by 14 years between 1947 and 1954.Similar trends were seen in countries such as India and Pakistan after the Second World War.

Table: 1 Changes in infant mortality rate and total fertility

rate in developing countries

As reflected in the table, the decline in the mortality rate has been a common feature in developing countries. For example, the infant mortality rate declined by 58 per cent in the period 1950-1975 and by a further 41 per cent in 1975-2000 in developing countries. This trend is expected to continue in the next quarter of a century. Reflecting these

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improvements in the mortality rate, life expectancy increased by 26 years, or 63 per cent, to 67.4 years in Asia.

Decline in the fertility rates

Major fertility reductions in the developing regions occurred, in general, during the last three decades of the twentieth century. Over the last 50 years, the average total fertility rate in those regions dropped by more than 60 per cent, from 6.2 children per woman in 1950-1955 to 2.9 in 2000-2005. Several socio-economic factors have contributed to this decline. Foremost among these are the population control policies adopted by Governments either through family planning programmes or fertility control measures, Individual family planning, even in the absence of State-sponsored family planning programmes, especially among the educated, in response to economic pressure is also a major contributory factor in the declining fertility rate. Nuptial control, characterized by a delay in the age of first marriage in response to cultural changes and socio-economic challenges in a changing global environment, is increasingly becoming a major force in population control.

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AGEING IN SOUTH ASIA

Speed and Features

Many Asian countries have already begun to experience rapid ageing of their population. Several others will join the same in the not too distant future. In 2000, the average age in Asia was 29 years. An estimated 6 percent of the region’s total population were age 65 and older, 30 percent were under age 15, and 64 percent were in the working-age group of 15 to 64 years (United Nations 2001). United Nations medium projections estimate that the proportion in the working-age group will be the same in 2050, at 64 percent, but there will be a dramatic shift in the proportion of children and the elderly (Appendix Figure 1). The proportion under age 15 will drop to 19 percent, and the proportion 65 and older will rise to 18 percent. The average age in Asia will be 40 years.

In general, the countries of East Asia are furthest along in the population ageing process, followed by South East and then South Asia. In South Asia itself the population, as said earlier, is expected to increase by 393 percent by the year 2050 as compared with the year 2000.

Table: 2 Projected Growth of Asia’s elderly population

Among the South Asian countries, in Sri Lanka relatively large proportions of the population are elderly. The proportion of elderly in the total population is expected further to increase rapidly reaching to the level as high as 12.3 in the year 2025 and 21.3 percent by the year 2050. In India ageing is taking place at a moderate rate while in other countries slowly. However, in future the share of elderly is expected to increase sharply. In Bangladesh, this share, which was just 3.1 percent in 2000, will increase to 10.9 percent by the year 2050. (Table: 3).

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Although South Asian countries are just beginning to experience population ageing, the process, as pointed out earlier, is occurring much more rapidly than was the case in Europe or North America (It will become quite clear when we compare the slopes of the two lines, Figure 1). Changes that occurred over 50 years in the West are being compressed into 20 to 30 years in South Asia. Not only will South Asian countries have less time to prepare for ageing, but most will have to meet the challenges of ageing at much lower levels of development than in Japan or the West.

Figure: 1 Speed of ageing in South Asia 2000-2050 compared

With the experience of North America and Europe

1950-2000

The reason is that ageing is occurring more rapidly than economic growth. The typical country with an old-age dependency ratio of 0.15 in 1970 had a per capita GNP of US$26,000, while the typical country with an old-age dependency ratio of 0.15 in 1999 had a per capita GNP of only US$7,400. This feature of ageing is explained in detail in the appendix 2.

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Another very interesting feature of population ageing in South Asia is that though today, South Asia’s elderly are concentrated primarily in the younger segments of the old-age population group, over time, the greatest increases in population will occur in the oldest age groups. Of all Asians age 55 and older, roughly one-half are now between the ages of 55 and 64, about one-third is between 65 and 74, and not quite one sixth are 75 and above

Table: 3 Projected increase in the number of people of age 65 and above as a share of the total population and population in the age group 20-64 years

COUNTRY

Population age 65 and above as percent of total population

Population age 65 and above as a percent of population in age group 20-64 years

South Asia 2000 2025 2050 2000 2025 2050Afghanistan 2.8 3.2 4.9 6.6 6.9 9.0Bangladesh 3.1 5.2 10.9 6.6 9.1 18.2Bhutan 4.2 4.8 8.2 10.0 9.7 13.8India 5.0 8.3 14.8 9.6 13.8 25.1Nepal 3.7 4.6 8.3 8.3 8.8 13.7Pakistan 3.7 4.8 8.3 8.4 9.5 13.6Sri Lanka 6.3 12.3 21.3 10.9 20.4 38.5

Source: United Nations, World Population Prospects-the 2000 revision

The number of elderly of age 80 or above is still very high in South and South West Asia as compared to the developed nations and South East Asia. Also the rate of increase in the number of elderly aged 80 and above is projected to increase very sharply, in the same regions, after 2025. (See appendix figure: A4)

Another important dimension of the ageing process is the rising number of women in the older age groups. In most countries of South Asia, as in the rest of the world, older women outnumber older men, particularly in the oldest age groups. This is a persistent feature of the region’s population that is not expected to change much over the next 50 years. In India where the number of males per 100 females in the year 1990 was 117, is expected to decline drastically to 84 by the year 2025, in the age group 80+. Similar trends are expected in the other South Asian countries. (Appendix table: A2).

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IMPLICATIONS OF POPULATION AGEING

Population ageing could have profound implications for the economies as well as societies experiencing a rapid increase in the share of older persons in the total population^. While the rising demand for medical services in old age and high medical costs could impose pressure on government and family budgets, an ageing population could lead to a drastic shift in the consumption and savings behavior of people. Labour markets may also experience a shift in the supply of labour with implications for labour productivity. However, ageing can also lead to the emergence of social welfare and gender-related issues. The combined effect of these changes could have an impact on economic growth and thereby the welfare of the people. These issues are discussed below in detail.

Fiscal implications:

The demographic changes that would be experienced by countries are likely to have a significant influence on public expenditure, in particular on the provision of pensions and health care. Since expenditure on pensions and health care is a major component of government budgets, pressures arising from demographic changes would have adverse effects on the budget deficit or surplus, For example the older population in the South Asian region is projected to increase by about 5 times(4.93 times precisely) between 2000 and 2050. Roughly then, the cost of simply maintaining public programs would also increase by 5 times, in real (constant price) terms. Thus, only by cutting per capita expenditure by sixty percent would the total outlay not increase. The expected decline in the share of the working-age population in the region, as well as the possible drop in the output, could lead to a shrinkage in the tax base and thereby tax revenues in the second quarter of this century. The fiscal implications of ageing would be felt strongly and much earlier in Sri Lanka, where the population is ageing rapidly and the proportion of the working-age group will decline in the first quarter of the century.

Health care:

The rapid ageing of the population in the region, in particular the ageing of the older population would increase expenditure on public health for three reasons. First, older people and in particular those of advanced age are more prone to diseases. The older population group is expected to expand more than fourfold during the next 50 years and is bound to increase the demand for health services on a substantial scale. Second, health care for older persons is on average more expensive than that for younger people. Finally, the declining trend in the number of families operating as caretaking institutions for older persons owing to the decrease in the size of family units may result in a shift in health financing from family-financed to publicly financed health services.

Labour market:

Population ageing could have implications for both the supply of and the demand for labour, leading to a labour market mismatch. On the supply side, the share of the

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working-age group (15-59 years) in the region is expected to drop by 2050. The expected drop would imply that the labour force could shrink in the region within the next 50 years. On the demand side, there will be a growing demand for labour intensive services such as old-age health-care, institutional, social and home-care services during the next 50 years. The demand for educational services could drop as the population of school-age is expected to decline in the next few decades. The demand for labour in the former category, however, may not be met domestically as long as the labour force is shrinking and there is no excess labour. However, countries with moderate ageing and high unemployment rates would be in a position to meet their labour demand and benefit from the ageing process. But the migration of labour in response to changes in immigration policies in more advanced economies in the face of rapid ageing in those economies may eliminate that advantage unless a coordinated approach to immigration policies is adopted in labour-importing and exporting countries. The expected sharp increase in the median age during the next 50 years implies that many countries in the region will have an ageing labour force, which may have the following adverse implications:

(1) A structural change in production owing to a shift in demand towards services and products for older people and the resulting frictional unemployment if labour mobility remains restricted. Such frictional unemployment could widen the qualification gap, producing a situation in which the highly qualified are in short supply and the poorly qualified are out of work.

(2) A possible change in labour productivity, although research in this area is not conclusive. While older workers are likely to have a positive attitude, be more reliable and possess better skills than the average workers, they are also more expensive in terms of health-care costs and lack flexibility in accepting new assignments and training.

Savings and Investments:

According to the life-cycle theory of savings, individuals make a choice between present consumption and savings for future consumption. Assets accumulated during their working years are spent during their retirement. This is particularly the case when there are no or limited retirement benefit schemes to smooth out consumption during retirement. However, empirical evidence in support of the life-cycle hypothesis is mixed. While some studies provide support for a strong link between demographic changes and private savings, others find only a weak relationship between them. Ageing could have a negative impact on savings in many developing countries in the region because retirement benefits are inadequate to support living in old age and additional years of life expectancy, so the retiree age group would consume more out of its savings. The severity of the drop in savings could be offset to some extent if young workers had prior knowledge of increases in life expectancy which could prompt them to save more for future consumption. The drop in savings would ultimately lead to a contraction in investment in countries that are ageing, unless compensated by investment from abroad. As the demand for homes, recreation, transport and schooling drops as a result of the shift in the relative age structure and preferences, investment in such areas may be particularly affected.

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Economic growth:

The rising dependency ratio in the Asian and Pacific region could have a major impact on economic growth as the output is produced by a declining labour force. The drop in labour force and investment could affect economic growth adversely unless factor productivity improves commensurately or the drop in the labour force is matched by migrant labour. A simple model explaining this is given in the appendix 1. However, the negative impact of slow output growth on per capita income would be mitigated to some extent by the declining population growth.

Care of older persons:

Familial care of older persons is a deep-rooted social norm in most parts of South Asia. Caring for older people has been a moral obligation of children and as a result only a small proportion of older people in the region live alone. However, with the changing family structure and composition in the face of urbanization, industrialization, migration and the increasing trend towards nuclear families coupled with declining fertility and increasing longevity, the ability of families to take care of older persons is gradually declining. The extent to which the family will remain the primary source of care for older people will have important implications for formal arrangements for the care of older persons.

Poverty and discrimination:

Older persons are often afflicted by poverty owing to a host of factors, including lack of skills or skills mismatch, lack of resources, ill health and social prejudices. Poverty among the rural elderly, in particular older women tends to be severe owing to the lack of formal or informal social security in old age. Women tend to live longer than men and rapid urbanization, resulting from the migration of mostly youth to urban areas, leads to the isolation particularly of rural women in old age. With the expected decline in the potential support by 2050, the poverty aspects of ageing could become worse in the next few decades, underscoring the need for formal social support and care of older persons. Discriminatory treatment of older people, particularly in relation to job recruitment, promotion and training, creates stigma and social exclusion.

It is quite obvious that in order to offset such impacts of ageing population, a set of policies focusing on long term ageing issues, should be formulated. However before looking into such policy recommendations, a study of Indian demographic scenario would provide a better insight into the problem of population ageing.

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POPULATION AGEING : THE INDIAN SCENARIO

India provides a very interesting case in the sense that it faces some very intriguing questions as to how to tackle the issues arising from the bulge in the working age population in the coming 20 years and a very rapid increase in the elderly population in the years following, which is increasing at a moderate pace now(Figure A2, Appendix 3). According to 1991 census, India had 60 million elderly (60 years plus old). This is about 6.7 percent of the total population, which is up from the 5.97 percent in 1971 and 6.32 percent in 1981 respectively. The percentage of elderly is much higher in rural (20.3 percent) than in urban areas (1.97 percent). The elderly population increased to 87.7 million in 2005 and is expected to increase to about 308.5 million by the first half of this century. India is now in the second phase of demographic transition, characterized by decline in both fertility and mortality but fertility declining much faster. Also data show that India is fast moving towards the stage of fast fertility and mortality decline viz. the third phase of demographic transition (Table: 4).

Table: 4 Demography of India: Selected Indicators Total fertility rates(TFR) Life expectancy at birth: Years1950-1960 5.95 1950-1960 40.652000-2005 3.01 2000-2005 63.902010-2015 2.46 2010-2015 66.302020-2025 2.14 2020-2025 67.802030-2035 1.92 2030-2035 70.002045-2050 1.85 2045-2050 73.80

Source: World Population Prospects, 1998 and 2000 revisions

This transition becomes clearer when we look at the age pyramids of India in three time periods, depicting how the base and the top are changing. Also it shows that the number of females compared to males will increase in the older age groups. It should also be noted from the changes between the year 2000 and 2020 that the working age population will increase rapidly. Thus, the current economic regimes in India are likely to deal in coming years with two demographically mediated issues: (i) swelling of the labour markets due to bulging in 25+ populations, and (ii) accelerating growth in size of ageing adults including older old (i.e. 75+) due to growing survival changes and added life span. Speedier expansion in the labour markets, require corresponding increase in job opportunities. Increase in the number of aged would require matching support provisions – ranging from economic and medical care to shelter, dignity and mental peace. However it would be a daunting task to provide such securities to the poor, as it is well known that India despite experiencing a high rate of growth has not shown very impressive results in converting the growth into poverty reduction in the past and where an average person after contributing till the age of 60, towards Provident Fund accumulates just Rupees 20,000 in assets.

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Figure: 2 Changes in Age Composition of India’s Population

2000

2020

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2050

Source: UN 2003, World Population Ageing (2002 Revision)

And also Provident fund restricts coverage to employees in one of 177 prescribed occupations working in establishments with at least 20 workers. This, therefore, calls for proactive policy formulations and reforms in the existing social and the economic systems in the country.

Some of the major policy responses and the reforms needed to tackle the problem of population ageing are discussed in the next section. These recommendations hold good for the whole South Asian region, as the nature of problems faced by the countries in the region are quite similar, though the pace of population ageing may differ across countries.

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POLICY RESPONSES

The rapid ageing of populations, as said above, unless managed in a proactive manner, could impose serious challenges for policy makers in the South Asian countries. Rapid ageing in the region and the resulting socioeconomic implications would require governments to take corrective action to minimize the negative effects of ageing in a host of areas, including fiscal operations and social welfare provision for older persons. These measures may also cover market reforms, institutional reforms, economic policy responses and initiatives for regional cooperation. Fundamental changes in policy design, particularly in health and pension systems, would be necessary to minimize the pressures on public expenditure and the overall growth potential of the economy. Efforts to assure adequate support for Asia’s expanding elderly population focus on four approaches. These are: (1) policies and programmes that enhance traditional Asian systems of family support; (2) policy reform that encourages the elderly who are still capable to remain in the work force through revision in retirement age and labour market reforms (3) institutions and systems that support high levels of personal saving; and (4) public programmes, including pension schemes and national healthcare systems.

Family Support system

In most traditional Asian societies, the elderly live in extended, multigenerational households and rely on their adult children, their spouses, and other family members for material needs and personal care. However, South Asia’s successful reliance on the family is likely to erode. Countries will be increasingly caught in a “demographic squeeze.” The elderly will find themselves providing care and support to their still-surviving parents, yet they will have fewer children upon whom they can rely. In addition to the demographic pressure, young people are increasingly leaving home to seek opportunities elsewhere. Many women are entering the workforce, reducing the time available to provide support to their parents. New ideas about marriage, family, and individualism are emerging in the region, as in many other parts of the world. A complete reliance on families to provide care for the older persons may not work because of serious poverty issues and jobless growth in the South Asian countries. Hence, there is need to asses the viability of family support systems and to devise programs that will be supportive or complementary. Attempts may nevertheless be made to strengthen the family system by allowing rebate in personal taxation to those supporting the aged.

Greater employment opportunities for elderly

(A) Revision in statutory retirement age

For many South Asian countries, early retirement is a welcome component of general improvements in the standard of living. Yet policies that specifically promote or dictate early retirement are damaging in several ways. First, older workers who are not yet financially prepared for retirement are forced to accept a lower standard of living during their retirement years. Second, economic growth is reduced by the loss of human capital. Third, the fiscal viability of public pension and healthcare programmes is threatened by

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the decline in the number of earners and taxpayers relative to the number of beneficiaries. One policy option is to raise the mandatory retirement ages, as these mandatory retirement ages were established at a time when life expectancy was much lower. Although such an option may not seem feasible in South Asia now as unemployment rates are quite high. However, in the years ahead this approach will be justified and will prove productive, moreover eliminating work disincentives and labour market impediments is sound economic policy under any circumstance.

(B)Labour Market Reforms

Reforms in the labour market are required to face the challenges and opportunities of population ageing. Liberalization of the labour market would need to focus on the effect of the declining labour force, productivity, migration and the adaptability of older workers to the existing working environment. Implementing measures that would increase the efficiency of the economy could offset the adverse effects of population ageing to a large extent. Initiatives to improve total factor productivity at both the local and national levels through technological innovation and more efficient allocation of resources could be the most important strategy, particularly in countries where the labour force is likely to shrink owing to an ageing population. This would allow countries experiencing rapid ageing of their populations to sustain their current levels of economic growth. Liberalization of the labour market would also enable countries to face the possible adverse effects of increasing labour migration. The threat of large-scale migration from the South Asian countries would be inevitable in the face of a declining labour force in countries which are experiencing rapid ageing. A flexible labour market would enable migrant labour to return to their home countries after their short term contracts abroad are completed, a process necessary to avoid transforming short-term labour migration into permanent migration. An important source of labour for many countries in the region would be the unemployed and underemployed women in home countries. In many countries in the region the participation of women in the labour force is constrained by factors such as lack of flexibility in career and child-rearing, the lack of day-care facilities for children, the lack of home care for older persons and social norms which lead to gender bias in education and employment. Removal of these constraints alone could neutralize a large part of the negative impact of ageing on labour markets. Labour markets should also respond to the needs of older workers as the older workforce will become an important component of the labour force in the years to come. Job redesign, the reorganization of the division of labour and the provision of a flexible working environment to meet the aspirations of older persons and make the best use of a growing number of older workers could be effective policy responses to an ageing workforce. This should be noted that such measures will also help in removing poverty among and discrimination towards the older population.

Saving and financial reforms

High rates of personal saving have important implications for national development. High rates of saving also provide an important source of retirement income for the elderly who do not wish to work or to depend on their children for old-age support. Unfortunately,

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low rates of return and financial turmoil in recent years have wreaked havoc with the savings of many who are retired or nearing retirement. In countries where saving rates are low, policymakers have several options if their goal is to encourage workers to save toward retirement. One priority is to ensure that the nation’s financial institutions provide attractive and secure long-term investment opportunities. A second is to control the rate of inflation so that money saved today retains its value in the future.

Reforms in Pension Programmes

Public pension programmes offer two important advantages. First, they represent a politically acceptable means of providing an economic safety net for those of the elderly who might otherwise experience severe levels of poverty. Second, national programs allow risk pooling. Individuals who must provide for their own retirement needs may make poor investments. They may suffer a disability that curtails their income-earning capacity or experience unusual longevity and outlive their savings. Public programs can spread these risks and provide a monthly benefit that lasts as long as the beneficiary survives. Most also include some form of disability insurance. These pension programs have come under frequent criticisms with regard to very low coverage. However, providing wide coverage may entail enormous administrative hurdles, particularly in low-income countries with large numbers of agricultural, self-employed, casual, domestic, and informal-sector workers. It is notoriously difficult to collect pension payments in sectors where labor turnover is high and documentation is weak. Coverage can be increased by introducing multi-pillar structures consisting of:

(1)Mandated publicly managed defined benefits scheme for redistributive and coinsurance objectives.

(2)Privately managed and funded defined contribution scheme for savings.

Another common problem with the pension systems in the South Asian countries is the administered low rate of return on PF schemes. To rectify this problem the rate of interest should be linked to market so that the effect of inflation can be neutralized.

A single account for each individual should be created, which should be portable across all jobs, so that the accumulation is not broken at each job change.

Healthcare Systems:

The demand for health services is bound to increase substantially in the next few decades with the rising share of older age groups in the society. Older people are usually prone to diseases, especially in the later part of their old age, and will require services for the specific needs of their age group. Hence, the large network of primary and community health centers in the South Asian countries should be revamped with additional facilities to provide basic health services to the needy - especially to the aged. This however

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requires a change in public perceptions with attempts to include a few geriatric conditions as part of the basic health care.

Health insurance is an effective mechanism for financing the health-care needs of older persons. However, at present private prepaid health insurance is almost non-existent in most of the countries in the South Asian region. Health care expenditures are either borne by the governments or by the individuals themselves. Therefore there is need for developing such an institutional framework which would help in flourishing private health insurance institutions.

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CONCLUSION

In some respects South Asia is fortunate because ageing is not as advanced and South Asian public-support programmes are not as ambitious— or unsustainable—as in the West. South Asia also has the advantage of studying the successes and failures of policies and programmes implemented elsewhere in the world. However, today, the region is at a critical juncture. It has comparatively younger population on one hand and high unemployment rate on the other. Therefore, the benefits of “Demographic Dividend” are yet to be tapped here. With the adequate investment and proper migration policies these opportunities can be seized till the first quarter of the century at least, when the population will remain younger.

Also, the economics of ageing in South Asia must be examined in the context of broader demographic changes, of which ageing is only one aspect. What is needed is a balanced and holistic approach, taking into account both economic and social considerations with a view to achieve improved individual welfare and to respond effectively to the challenges of ageing. On the economic front, fundamental changes are needed in policy design, particularly in health and social security systems, to minimize the pressures on public expenditure which would have an impact on the potential for overall growth. On the social front, the promotion of health throughout life and the creation of an environment conducive for the private sector to develop alternative social security schemes such as health insurance schemes are important policy options to consider. While the promotion of family care for the elderly by providing incentives should be a priority, the development of institutional care for the elderly by both the public and private sectors would also be necessary, particularly in the light of the changing family structures and their negative impact on familial care. The fundamental thrust of both economic and social policies should be on avoiding the elderly becoming poor, isolated and discriminated against while maintaining the socio-economic conditions of the public in general.

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APPENDICES

Appendix 1Effect of Ageing on Economic Growth

MODEL

The productive capacity of the economy is measured by its Gross Value of Output (GDP).In addressing the matter of how population ageing is likely to affect the longer term productive capacity of the economy, it is helpful to draw on the (highly simplified) relation: Q = A + b L + c K such that b + c = 1 which states that Q , the rate of growth of the nation’s output, is the sum of three factors: A, which can be interpreted as the rate of productivity growth; L, the rate of growth of the labour force (assuming a constant rate of unemployment),weighted by labor’s relative contribution to output, b; and K, the rate of growth of capital (the composite of machinery, equipment, and productive physical structures of all kinds), weighted by capital’s relative contribution to output, c. The relative contribution weights sum to 1.0.

We start by considering the rate of labour force growth. The labour force is drawn from the population, of course, and so this is the most obvious point of impact of population ageing on the economy. As already noted, the slower growth that comes with population ageing is reflected in slower growth of the labour force, but with a delay. For example, those born in the latter part of the 2000 will reach labour force age in the latter part of the 2020, and that will play an important role in the relatively slow growth of the labour force at that time and subsequently. The continuing small numbers of births are a major source of the anticipated future slow growth of the population and labour force.

We turn now to capital. The stock of capital grows as the result of investment. Investment, in turn, is related to the amount of saving, as discussed in the text, people are assumed to accumulate assets (that is, save) during their working years and decumulate (dissave) during retirement. Thus one might expect that at present the baby boom would be a phase of relatively high accumulation rates, and that high rates of aggregate saving would continue for another decade or so, but then start to fall. Based on conventional economic argument there is the prospect of a decline in the saving rate as the population ages, and hence in the rate of growth of the capital stock, and that would coincide with the slowing rate of labour force growth. That combination could, then, result in a slower rate of growth of the national income and product. All of this is based on more or less standard economic theory, and there are many ifs and buts attached to it. The argument does demonstrate, though, how population ageing may affect the capacity to produce goods and services as well as the demand or requirements for those goods and services. Consider, finally, the rate of productivity growth, A. This factor has usually been treated as exogenous- unrelated to other factors, including population change. It is clear from the model that, in the face of slower future rates of labour force and capital

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growth, more rapid gains in productivity will be needed in order to maintain even modest increases in overall output per capita in the region.

Appendix 2Development and Ageing: The changing nature of relationship

Figure A5 shows the simple statistical relationship between the old-age dependency ratio and income in 1970, 1999, and 2025. The old-age dependency ratio is calculated as the number of elderly (age 65 and above) in the population for each working-age adult (age 15 to 64), while income is expressed as the per capita gross national product (GNP) in 1995 US dollars. Based on World Bank data for 104 countries, the 1970 and 1999 lines show that higher-income countries had to cope with higher old-age dependency ratios in both years, but the line for 1999 is higher than the line for 1970, indicating a significant shift in the relationship between population aging and income. The typical country with an old-age dependency ratio of 0.15 in 1970 had a per capita GNP of US$26,000, while the typical country with an old-age dependency ratio of 0.15 in 1999 had a per capita GNP of only US$7,400. The relationship between population ageing and income is likely to continue to shift in the same direction. The 2025 line shows the relationship between the old-age dependency ratio and per capita GNP in 15 Asian countries. The figure also shows specific 2025 estimates for five countries. The calculation assumes that per capita income will continue to grow at the same rate as in the 1990s and that the United Nations medium population projections will prove to be accurate. Under these conditions, a typical country with an old-age dependency ratio of 0.15 in 2025 will have a per capita GNP of only US$3,800

Figure: A5 Development and Ageing, 1970, 1999 and 2025

Source: World Bank 2001, United Nations 2001

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Appendix 3Figures and Tables

Figure: A1 Asia’s age transition: working age adults,Children and elderly, 1950-2050

Figure: A 2 Working Age Population (aged 15-59) as a percentage of thetotal population: India, 1950-2050

Source: World Population Ageing (United Nations publication)

Economics of Ageing Population in Asia: Implications and Policy Responses

Figure: A3 Labour force participation rates of males 65 and older

Figure: A4 Total 80+ population in South and South West Asia compared with the rest of the world

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Economics of Ageing Population in Asia: Implications and Policy Responses

Table: A1 Gender and age group wise growth of population indifferent age groups: India, 2000-2050

Table: A2 Sex ratios(male : female) for selected South Asian countries 1990 2025

Country 25-49 65-69 80 + 25-49 65-69 80 +Bangladesh 108 115 189 105 100 102India 109 101 117 106 97 84Pakistan 103 109 105 105 91 72Sri Lanka 95 104 101 102 79 63Source: Data in U.S. Bureau of Census, Washington, DC

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Economics of Ageing Population in Asia: Implications and Policy Responses

REFERENCES

(i) Population Ageing in the Developing Societies: SD Department, FAO, United How urgent are the issues? Nations 2001 (ii) Economics and social survey of Asia and Pacific ESCAP United Nations 2005

(iii) Ageing and growing insecurities for the aged Moneer Alam and Mehtab In India and Pakistan, 2005 Karim, IEG

(iv) Ageing in Asia: the need for social protection ILO, United Nations

(v) Economic and Political Weekly 1994, 2005

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